RAMALLAH, West Bank, March 3 (Mohammed Assadi/Reuters) - Palestinian President Mahmoud Abbas' dominant Fateh political faction has demanded that he sack Western-backed Prime Minister Salam Fayyad, according to a letter shown to Reuters on Thursday.

The letter, signed by senior Fateh officials, was sent to Abbas on Saturday, but the president did not take it seriously, a Fatah official told Reuters.

However, the request underlined deep political friction at the heart of the Palestinian Authority, with many Fateh activists clearly frustrated by Fayyad, who has no significant political base of his own but wields substantial power.

Fayyad, a former World Bank economist, is widely credited by Western governments with transforming the institutional landscape in the West Bank, successfully building the core structures needed for a planned independent Palestinian state.

As prime minister he controls finances and security, leaving many Fateh members to complain bitterly in private that his high-profile activities are overshadowing their own work.

We suggest you reconsider re-appointing Dr. Fayyad and (instead) ask that a strong Fateh figure do the job, said the letter, backed by Fateh's central revolutionary council.

Looking to show his commitment for change in the wake of popular protests across the Arab world, Abbas on Feb. 14 asked Fayyad to appoint a new cabinet and prepare for elections.

Talks aimed at drawing up a new list of ministers have not gone as quickly as hoped, and the Fatah discontent is likely to further complicate Fayyad's task.

Fatah was particularly upset when Fayyad proposed forming a unity government with Hamas Islamists, who seized control of the Gaza Strip in 2007 after a brief civil war with Fatah forces.

Hamas rejected Fayyad's advances and denounced him as a puppet of the West, which provides much of the aid needed to prop up the West Bank economy under Israeli occupation.

Fatah has dominated Palestinian politics for generations and many activists are angered by Abbas's apparent reliance on Fayyad, saying it risks eroding their credibility.

(Writing by Mohammed Assadi; Editing by Jon Hemming)